National Taxpayer Advocate Nina E. Olson today released her
statutorily mandated mid-year report to Congress that identifies the
priority issues the Taxpayer Advocate Service (TAS) will address during
the upcoming fiscal year. The report expresses particular concern about
the impact of budget cuts on the IRS’s ability to meet taxpayer needs,
the IRS’s unwillingness to issue full refunds to victims of tax return
preparer fraud and shortcomings in IRS procedures for assisting victims
of tax-related identity theft.

In addition, Olson released a special report examining the IRS’s use of
questionable criteria to screen applicants for tax-exempt status. The
special report analyzes the sources of the problem and makes preliminary
recommendations to address them.

“Today, the IRS is an institution in crisis,” Olson wrote. “In my
view, however, the real crisis is not the one generating headlines. The
real crisis facing the IRS – and therefore taxpayers – is a radically
transformed mission coupled with inadequate funding to accomplish that
mission. As a consequence of this crisis, the IRS gives limited
consideration to taxpayer rights or fundamental tax administration
principles as it struggles to get its job done.”

The IRS must administer the requirements for tax-exempt status in a nonpartisan and
even-handed manner. When an organization seeks exempt status, it is essentially asking
all other taxpayers for a contribution to its activities. Thus, the IRS has an obligation to
review these applications closely.

According to a report by the Treasury Inspector General for Tax Administration (TIGTA),
IRS Tax Exempt Organization (EO) function employees inappropriately selected for further
review applications for tax-exempt status under Internal Revenue Code (IRC) § 501(c)(4)
from organizations with “Tea Party” or similar terms in their names. These terms were
on a “Be on the Lookout” or BOLO list, which flagged 298 applicants for further review.
According to TIGTA, the IRS also asked the applicants unnecessary questions, including
questions about donors, and delayed processing their applications while awaiting guidance
about how to handle them. TIGTA found that IRS employees used inappropriate selection
criteria because they did not understand the law or believed it was unworkable, and they
created inappropriate job aids and information requests that were not vetted.

TAS has reviewed the TIGTA report, researched the applicable legal standards and IRS
procedures, searched for TAS cases involving these issues, and reviewed known systemic issues
in EO. Although TAS agrees with TIGTA’s recommendations, we reviewed these materials
to further analyze the causes of the problem, and determine why it was not identified
or corrected sooner. Our goal was to develop additional recommendations to help prevent
the problem from recurring and restore trust with the taxpaying public. A summary of
TAS’s findings and recommendations, which fall into four broad categories, follows:

Lack of Guidance and Transparency

Absence of Adequate Checks and Balances

Management and Administrative Failures

EO’s Cultural Difficulty with TAS

The National Taxpayer Advocate plans to make recommendations on this subject in her
year-end report.8 At a minimum, she recommends that Congress enact a Taxpayer Bill of
Rights that sets forth ten broad rights, modeled on the U.S. Constitution’s Bill of Rights, to
help make existing rights clearer and help taxpayers better understand them. The National Taxpayer Advocate has made this recommendation in prior annual reports, and the treatment
of § 501(c)(4) applicants violated most of the ten proposed taxpayer rights.

We further recommend that Congress authorize the National Taxpayer Advocate to make
symbolic “apology payments” of up to $1,000 to taxpayers where the IRS has caused excessive
expense or undue burden to the taxpayer, and the taxpayer has experienced a significant
hardship. This is something that tax administrations in a number of other countries
already provide for. For present purposes, we offer the following preliminary proposals
for consideration and discussion by Congress and the IRS, which merit additional study,
but are likely to evolve after further analysis.

Comments

$1000 is a pittance. They should take all IRS employee bonuses for the next 4 years and redirect them to the abused parties.

Posted by: Ancient Bacon | Jun 26, 2013 10:49:16 AM

I keep hearing the IRS is underfunded, yet they seem to have plenty of time to waste on harassment of conservative citizens and conferences. They held 225 conferences from 2010 to 2012, or about two per week. Can't they train online like most businesses do? The government is a lot of things, underfunded isn't one of them. Instead of spending tax payer funded time on airfair, cocktails, videos, lavish rooms and food, why not spend that time figuring out why they pay refunds to fraudulent accounts?

Posted by: Gmama | Jun 26, 2013 10:52:34 AM

The Apology Payments are a good idea, but even better would be automatic $1,000 payments to anyone who is audited. Ideally, we'd compensate people enough that a person would *want* to be audited if his conscience was clean, just as a good worker likes it when his boss checks the quality of his work.

Posted by: Eric Rasmusen | Jun 26, 2013 11:35:38 AM

Too little, too late. the IRS is on the hook for massive damages when civil rights suits get into high gear. Look for 100s of millions in loss, not including defence costs. Unfortunately, you and I pay.

Posted by: garrettc | Jun 26, 2013 11:39:11 AM

NO!!! There is no need to dole out funds we do not have, to people who received no financial injury. If they felt slighted, then grow up and get over yourself already! Just take your ball and go home. Not every minor slight deserves a windfall. Get a grip.

Posted by: Nancy Prosser | Jun 26, 2013 1:44:26 PM

"Unfortunately, you and I pay."

And that's why so many are so willing to do it. These people will not be fined. They will not be charged with crimes. They will receive no punishment whatsoever. In fact, I predict many will get bonuses and promotions for being repressive, obedient thugs for the Democratic Party leadership.